Growth of 3%? Good luck

In fact, since the 2008-2009 recession, the highest GDP growth the U.S. managed was in 2015, at 2.6 per cent. So it makes you wonder what the reference point is for “normal” growth. The U.S. Federal Reserve’s estimate for long-term GDP growth is 1.9 per cent. And you have to go back all the way to the late ’90s (1996 to 2000, to be exact) to find a five-year period of threeper-cent-plus growth. And that, too, proved unsustainable. (See: the dot-com crash.)

Still, if you believe the administration and its boosters, they have discovered the secret sauce that will make high growth stick: the trifecta of Trumpian economics — tax cuts, deregulation and infrastructure spending.

Tax cuts, in particular, could give growth a boost. The World Bank last month estimated that a 15 per cent U.S. corporate tax rate (down from 35 per cent now) and other personal tax cuts could raise GDP by 0.3 and 0.7 percentage points this year and next, respectively. That would also have knock-on effects for the global economy, raising GDP worldwide by 0.1 and 0.3 percentage points in 2017 and 2018, respectively, according to the World Bank.

Yet even that boost wouldn’t get U.S. GDP growth quite to three per cent, by the World Bank’s estimates, which put the theoretical post-tax-cut growth at 2.4 per cent this year and 2.8 per cent in 2018.

As it stands, the tax cut itself is theoretical — Mnuchin has suggested it will get done by August, though even he admits that’s ambitious. As well, the administration now seems to be leaning toward a border adjustment corporate taxation scheme, which would give a break to exporters and slam importers, at a 20-per-cent tax rate. That’s not 15 per cent, which was a Trump campaign pledge. As well, the border adjustment tax is likely to be inflationary, which at least in the short term could hinder real GDP growth.

So maybe deregulation, particularly of financial institutions, can get growth higher? Well, that’s debatable. It’s not at all clear that post-recession banking regulations, like Dodd-Frank, have been responsible for reduced bank lending, especially given the ultra-low interest rate environment. It’s also not clear that increased loan supply has any positive impact on economic output — although loan demand might well increase when output goes up. One thing easier lending does tend to do is fuel asset bubbles.

Here’s another way to look at it: If you want to increase economic output, you either get better at making stuff, allowing you to make more (productivity), or you get more people making more stuff (population growth).

For the U.S., there is no clarity on either front. Productivity growth since 2007 has averaged 1.1 per cent — the lowest mark in the postwar era. Meanwhile, the U.S. population — which isn’t getting any younger — has been growing by less than one per cent since 2001, and a good chunk of that growth has been fuelled by immigration. If, as many expect, immigration declines under Trump, fewer adults will be available to fill the jobs needed to grow the economy — and there are already worker shortages in the construction, agriculture, manufacturing and healthcare sectors, among others.

There’s the rub: even if the U.S. government manages to engineer a growth spurt, you have to wonder about sustainability. And that’s not only because highgrowth periods in the 21st century seem not to last very long.